AIR. Without it, there is no housing market. This is a different type of A.I.R.– it’s specific to the housing market. Without it, we can’t afford real estate. Without it, there is no inventory. Without it, interest rates aren’t feasible.
I’m talking about the 3 primary challenges that we as real estate industry professionals are facing.
· Affordability
· Inventory
· Rates
Affordability
Even with consideration to the burst of the housing market bubble in 2008, American home prices have increased nearly 291% since 1997. Better yet, the median home price in the United States has increased from $170,878 in February 2011 to $386,853 in May 2022 (126%).
https://dqydj.com/historical-home-prices/
According to FRED, real median household income in the United States was at $60,428 during 2011, but only increased to $70,784 in 2021, a nominal 17%.
https://fred.stlouisfed.org/series/MEHOINUSA672N
When the cost of real estate increases 1612% more than the real median household income increases, we end up with the Affordability issue that we face today.
Inventory
Active listing count in the United States has plummeted from 1,463,302 listings (Jul 2016) to 577,972 (Feb 2023) according to FRED.
https://fred.stlouisfed.org/series/ACTLISCOUUS
While the housing market realized the most significant drop in inventory between January 2020 and January 2022, inventory picked back up between spring 2022 and Q4 2022. We all can agree that the cost of borrowing is likely the single largest variable when factoring housing demand.
If you purchased or refinanced your home at maximum loan to value with minimum interest rate over the last couple of years, you may think twice about selling. Couple that with rising rates and prices and you can expect even fewer homeowners to be as motivated to sell.
Rates
With the most recent jobs report apparently affirming a much stronger jobs market than expected, according to ADP, we can expect the Fed to raise the rate again during their March 21-22 meeting. Assuming the market agrees, we will see the 10 Yr US Treasury Yield to increase, resulting in additional mortgage rate hikes.
https://www.google.com/finance/quote/TNX:INDEXCBOE?hl=en&window=YTD
Most housing market and real estate industry professionals concur that each of these 3 primary challenges are growing in the wrong direction. So rather than focus on the lemons, let’s make some lemonade. Shall we?
When the cost of real estate increases 1612% more than the real median household income increases, we end up with the Affordability issue that we face today.
Inevitably at some point, the AIR will change. Whether that is due to rates hopping back on a long-term downward trend or inventory popping back on the market, something is bound to change for the better, eventually. So let’s focus on a short-term solution until the variables shift.
Solution
Affordability Steps for Temporary Solution:
Bell Bank Mortgage offers a 1% down payment and no private mortgage insurance for qualified buyers in designated areas.
Bell Bank Mortgage offers new construction, one-time closing financing options with as little as 5% down and no private mortgage insurance for qualified buyers in designated areas.
The FHFA has increased the conforming loan limit to $726,200, providing more buyers to avoid jumbo loan pricing and stricter guideline requirements.
The FHFA has mandated loan level pricing adjustments. My detailed article about how less qualified buyers will have access to better home loan terms is published here.
FHA cuts the annual mortgage insurance premium by 30 basis points, saving FHA buyers approximately $1,200 per year on average.
Inventory Steps for Temporary Solution:
Assume an existing mortgage with an existing, low rate. It’s not the magic pill, but it is an option for motivated agents, buyers and sellers. Agents typically have access to a list that identifies which homes in the area are financed with a VA loan. Those who are motivated to innovate are the professionals who will make it through this soft housing market cycle.
As a real estate agent, be sure to educate your buyers and sellers about the possibility of having their VA loan assumed or assuming the VA loan of a home in mind. My recently published article with details can is here, Ask This One, Simple Question.
Build it and they will come. In this market, they’re already here. Just build it. If the inventory isn’t there, create it. Partner with a builder. If the builder is maxed out on their line of credit and/or wants to shift the risk to the buyer, have them call me.
Using my new construction financing one-time closing option with as little as 5% down, I can have 100% of the financing funded and the loan closed before your client or builder breaks ground.
Rates Steps for Temporary Solution:
In additional to the increase in conforming loan limit, decrease in FHA mortgage insurance premium, and recent FHFA loan level pricing adjustments, I offer a 2-1 buy down option for clients who receive seller concessions.
It's not as complicated as it sounds and it is a huge benefit to anybody that's looking to purchase a home while rates are 7 to 7.5% (at least at the par range, which means free rate). So take the following example: if your loan is going to be $300,000 for a 30-year fixed with a 7% interest rate, the monthly payment for principal and interest is going to be around $1,996.
What a 2-1 buy down does is, it will lower the interest rate from 7% to 5% for one year. Because it lowers the interest rate from 7% to 5%, it's going to lower your principal and interest payment from $1,996 to $1,610. That's a monthly savings of $386 dollars!
With the grit and discipline that we have exhibited as real estate and lending professionals over the last few years, I’m confident that we have enough remaining in the tank to plow through just a bit longer with these short-term solutions to help ease that chokehold long enough to gain our full strength back and dominate once again.
Terry Roberts USMC Veteran, Sr. Loan Officer NMLS 397987 E Mortgage Capital Equal Housing Lender
Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. he has helped more than 10,000 clients start the home buying process across America.
Comentarios